A Limited Company contractors guide to insurance

Whilst you’re busy contracting, the last thing you’ll want to worry about is your insurance and what could happen if anything didn’t go to plan. With many clients they’ll also legally require you to have the correct insurance in place before you commence work.

So which types of insurance do you need, what will they cover and where can you find them? In this blog we explore just that to help you get the right insurance cover for you.

First things first – getting the contract

Seasoned contractors will know that most clients will not sign a contract unless you have the correct insurance in place, but if you’re just starting out this may be news to you. If that’s the case don’t let the absence of insurance slow you down from starting your first contract, get it sorted as soon as you’re able to.

Insurance as an IR35 indicator

Insurance is seen by HMRC as an indicator of self-employment if you’re working outside IR35, as it clearly shows that you’re in business on your own account. If you’re new to contracting and unsure of what IR35 is and what you need to be aware of, take a look at our IR35 information hub for all the information you’ll need.

To protect you against mistakes

Should you make any mistakes during a contract which result in costing your client financially, they might claim for damages against your company. These mistakes could be due to a technical error, poor advice, or simply an accident that resulted in damage to hardware.

If you’re investigated by HMRC

All and any businesses are open to a tax investigation by HMRC, and for the most part this is nothing to worry about. That being said with the recent rule changes surrounding IR35, for some contractors there may be an element of worry for past contracts being investigated and found ‘inside’ IR35 retrospectively.

When it comes to the types of insurance available there are various types out there which protect against different things, but as a rule of thumb the following types are generally considered best for contractors, as a bundle which includes these will cover you for all eventualities:

Professional Indemnity

Helps protect your business should a client claim there’s an issue with the work you’ve completed for them. If you need to pay compensation to correct a mistake or settle a claim it will cover your costs, along with the cost for your legal defence.

Professional indemnity insurance provides invaluable cover for contractors providing professional services or advice to clients who could challenge it.

Public Liability

If someone else is injured or equipment is damaged during the duration of your contract, public liability insurance covers you against any costs incurred from third parties, such as compensation pay-outs and legal costs.

Employer’s Liability

Covers you against any claims your employees make. For contractors it’s common that the only employee will either be just you or you and your spouse, and therefore claims may be unlikely, but you’ll find that lots of agencies and / or end-clients will still insist that you have it.

IR35 / Tax Investigation Insurance

When identifying whether a contractor is inside or outside IR35, HMRC are able to determine whether a contract represents ‘disguised employment’ based on a number of criteria, including employment status rules as well as a number of court rulings and precedents. Since April it is now the end-hirer / client’s responsibility to determine a contractor’s IR35 status correctly, but should you be subject to an investigation for contracts undertaken prior to April 2021 you will need to pay back the due tax, and any associated fines.

Tax investigation insurance protects you against costs incurred with a HMRC investigation.

How can Aardvark Accounting help?

Here at Aardvark we know that helping keep your accounts in order is just as important as ensuring you’re fully protected, so that you’re free to contract confidently knowing that you’re covered should the unexpected happen.

That’s why we’ve partnered with Hiscox Insurance and Markel Tax to provide our clients who are on our Essentials Plus or Duo packages with a free bundle of insurance. The insurance is specifically designed for Limited Company contractors, and includes the following:

• Professional Indemnity Insurance – £2,000,000 cover from Hiscox
• Public Liability Insurance – £5,000,000 cover from Hiscox
• Employer’s Liability Insurance – £10,000,000 cover from Hiscox
• Tax Investigation Insurance – £100,000 cover from Markel Tax

For more information on our packages or how our insurance can help you contract confidently, get in touch today.